Van Dyck Law, LLC is a full service Estate Planning & Elder Law practice. They write about comprehensive planning in the areas of wills, trusts, powers of attorney, medical directives, Elder Law and probate & estate administration.

Many soon-to-be retirees are closely-held business owners who have created and operated very successful businesses for years, but they’re now considering what their next move will be.

These people frequently have questions about transferring their interests to their children, key employees, or even selling to an outside third-party. They wonder what the company is worth and if they’ll be able to achieve financial independence. Another big issue is how to create a plan that keeps them in control and provides greater options.

Because the vast preponderance of closely-held business owners’ net worth (up to 85%) is wrapped up in their businesses, it’s vital that they start the exit planning process early.

Starting early, lets an owner consider and address critical planning needs. Every successful exit begins with deciding when the owner wants to exit, to whom they wish to sell or transfer their business and how much equity they want or need from the business.

Your exit plan should address both personal and business asset protection, strategies for tax minimization and value maximization, successor development, business continuity planning, and estate planning.

Your exit plan is your blueprint that keeps you in control of the exit planning process.

Baby Boomers should carefully consider and integrate this into a comprehensive, tailored plan.

Planning for these important parts of your strategy today, helps make for a successful exit tomorrow. It also gives business owners more options and peace of mind.

04/26/2018

“An 81-year-old woman with a sore jaw died just weeks after a breathtaking mistake: Doctors at a Detroit-area hospital performed brain surgery on her, because of a records mix-up.”

A Michigan jury recently returned a $20 million verdict in favor of Bimla Nayyar’s estate. However, her family won’t get any of it. That is because the verdict was thrown out on very technical grounds that had nothing to do with the tragic mistake in 2012 at Oakwood Hospital in Dearborn.

The Washington Post reports in its article, “Family of woman who died after surgery blunder gets no money,” that for a second time the Michigan Supreme Court has declined to hear the appeal. Chief Justice Stephen Markman wrote in his opinion for the Court that the decision should stand, but he still called the case a “medical and legal dereliction, resulting in an extraordinary miscarriage of justice.”

Ms. Nayyar was admitted to the hospital for a procedure to realign her dislocated jaw. However, rather than correcting the jaw issue, surgeons performed a craniotomy, which involved the temporary removal of a bone flap in her brain. Hospital staff later discovered that she didn’t need brain surgery and that there was a mix-up with the medical records.

Nayyar died two months later. A jury in 2015 said the surgeons and the hospital caused her death. They awarded her estate $20 million.

However, the huge verdict didn’t stand because the Michigan Court of Appeals reversed the decision, holding that Nayyar’s death was presented as a case of negligence, when it should have been argued as medical malpractice. The latter type of case has a limit on financial awards in the state. The appellate court noted that the first of two judges hearing the case had ruled out a negligence claim. Nayyar’s lawyers petitioned the Michigan Supreme Court to reverse the decision and argued that the hospital had already admitted that the surgery was an error.

Nayyar’s family “now has no negligence claim and no medical malpractice claim,” Chief Justice Stephen Markman wrote, “all even though (a) defendant-hospital openly admitted negligence, (b) a jury determined that this negligence constituted the proximate cause of plaintiff’s death, and (c) a jury awarded plaintiff a $20 million verdict.”

One observer at WMU-Cooley Law School, said Nayyar’s estate probably could have won at least $800,000 under a capped medical malpractice claim.

04/25/2018

The standard Part B premium remains $134 a month, but many beneficiaries will pay more for Part B. As Kiplinger’s recent article, “Medicare Part B Premiums Rise for Some,” explains, this is because of the hold-harmless provision.

In 2017, this clause had a positive effect for most beneficiaries. For those whose Medicare premiums are automatically deducted from Social Security, the rule restricts premiums from going up more than the amount added to benefits by the annual cost-of-living adjustment. In years when there’s no Social Security COLA or a small COLA, like last year’s 0.3%, Medicare premiums are restricted. Although the standard Part B premium for 2017 was $134 a month, the miniscule COLA resulted in many people continuing to pay $109 a month.

However, inflation in 2017 meant that there was a 2% COLA for 2018. Although that might not look like much, for about 42% of beneficiaries, it’s enough to allow Medicare premiums to rise to $134. The hold-harmless clause will continue to impact 28% of beneficiaries in 2018. For folks with lower Social Security benefit amounts, the 2% COLA isn’t enough to get their Part B premiums up to $134, so they’ll pay less than the standard amount.

Those who aren’t held harmless, like people who don’t deduct their Medicare premiums from their Social Security benefits or new Medicare enrollees, will pay the standard $134 a month.

High incomers aren’t protected by the hold-harmless rule. They’ll pay premiums much higher than the standard amount, up to about $429—just for Part B. They also face a surcharge as high as about $75 a month on Part D premiums. The surcharges for Parts B and D start when adjusted gross income plus tax-exempt interest is more than $85,000 if single or $170,000 for married couples filing jointly.

While the premium surcharge amounts for Part B remain static in 2018 (and are slightly lower for Part D), the income thresholds in the three highest tiers decrease. This means some high incomers will pay more.

If you’re looking at an income-related surcharge, see if you qualify for relief. The government decides who owes surcharges by examining tax returns from two years ago. Thus, 2018 surcharges are based on income reported on 2016 returns.

If your income has dropped because of a qualifying life-changing event, like the death of a spouse, divorce, or retirement, you can ask for relief. If granted, the government will use your income from a more recent tax year to determine if you must pay the surcharge.

04/24/2018

“Is an e-will, which exists only in a computer file, just a manifestation of another technological advance that can be accommodated by our statute of wills, or does it really test the boundaries of the law?”

The New York Law Journal’s recent article, “Wills in the Digital Age” asks if an e-will, which exists only in a computer file, is a legal estate planning document.

Only Nevada currently has a statute governing these wills, and the governor of Florida recently vetoed a proposed electronic wills statute. However, some state courts have addressed the issue. For example, the Tennessee Court of Appeals affirmed the admission to probate a will written with a word processing program and signed by both the witnesses and the testator typing their names at the end of the document.

But how is the will executed? How is it stored and how is the integrity of the document assured? How do you revoke an electronic will or admit it to probate? There’s also the issue of electronic signatures—from scanning an image of a signature to encryption.

What happens when the witnesses and the testator aren’t in the same physical space but are connected via the Internet? The problem is that the testator doesn’t know what the witness is viewing.

As far as storing and retrieving the electronic will, some say it will fall under the provisions of the laws governing fiduciary access to digital assets.

There are numerous questions and obstacles to the e-will, and not very many answers. However, with smart contracts and other technology, we will likely get there one day.

The Uniform Laws Commission has appointed a committee to draft a uniform electronic wills act—because it looks like the electronic will is inevitable.

04/23/2018

Take some extra time to consider claiming your Social Security benefits at age 62.

“Your life might depend on your decision,” MarketWatch notes in its article, “Why early retirement can be a killer.” This is because there’s a significant increase in mortality among men who retire at 62 and begin receiving Social Security, according to a new study that recently was distributed by the National Bureau of Economic Research.

The increase in the death rate is quite large, particularly among males who retire and claim Social Security at 62. The study found it to be by 20%. However, the data are inconclusive among females. The authors of the study believe there is a causal link. Evidence of such a link is from the period before it was even possible to claim Social Security as early as age 62. During that earlier period, the researchers found there was no abnormally high increase in mortality at age 62. Thus, the unexpectedly large increase in mortality at age 62, starts to occur in the historical record right when people could start claiming their Social Security benefits at that earlier age.

So why would taking early retirement lead to increased mortality? The research found unhealthy changes in life style that often go with retirement. For instance, there is other research that found male “retirees become sedentary, often watching more television.” But there appears to be no increase in sedentariness among females after retirement—perhaps a reason why there is a lower mortality rate among women who retire at age 62.

Also, unlike women, male retirees, in particular, also typically have fewer social interactions after they stop working, which other research has shown has a negative impact on health. There are also studies that found there to be an increase in tobacco and alcohol use after stopping work.

There’s no requirement you must stop working when you claim Social Security benefits at age 62; however, a third of those who do claim their benefits at that age do stop working.

Some will conclude from this research they should delay claiming Social Security for as long as they can. If they can’t, they should keep working—even if part time. This might be the right thing to do, if it keeps you from engaging in unhealthy behaviors.

However, these conclusions aren’t a given for everyone. Retirement could be a positive for your health. You may start exercising more and keep to a healthy diet.

04/20/2018

“Some 1,000 luxury items from the Hollywood mansion of 1950s Hungarian hottie Zsa Gabor will go on the auction block next month, including the gilt, four-poster bed she shared with husbands six through nine.”

An estate sale, also known as a “tag sale” in some parts of the country, is used to liquidate the belongings of an estate. The auction will include an English saddle that was given to Gabor by her friend Ronald Reagan and the dining table at which she entertained Frank Sinatra, Sammy Davis Jr. and Tony Curtis. Heritage Auctions will auction off everything at the mansion itself on April 14, but they’ll also take online bids.

“What I love most is the necklace that says ‘Dah-ling,’” in rhinestones, Margaret Barrett said of the goodies. “It’s fun because that was her catchphrase,” she muses.

The California driver’s license that Zsa failed to produce during a 1989 traffic stop is also up for auction. She was convicted, if you recall, at age 72, of slapping a Los Angeles patrolman. However, as the story says, even as she stumbled from her Rolls-Royce on that day—with a flask of Jack Daniels in the front seat—she looked marvelous.

The results showed that only 20% of Gen Xers have talked to a financial advisor, that only one-third of Gen Xers have tried to figure out what they’d need to have saved to retire and that only 23% of the Gen Xers who have tried to save for retirement, have more than $250,000 in retirement savings. However, the research shows that roughly 58% of the Gen Xers are somewhat or very confident they will have enough cash to cover basic expenses in retirement.

The survey didn’t break down most of the results by income or asset level, but they did look at the use and lack of use of a financial professional. Participants with financial professionals might be the ones who have more overall financial flexibility, with 82% of the Gen Xers with financial advisors responding that they’d discussed retirement planning, and 61% said the advisors had discussed investing. Those discussions may have contributed to 87% of the Gen Xers with advisors saying they were confident about having enough income to cover their basic expenses in retirement. However, even the Gen Xers with advisors said they had grave doubts about their ability to handle other major financial challenges.

Here are some of the other findings:

Covering long-term care (LTC) costs. Just 63% of the Gen Xers with advisors said they were somewhat or very confident about having enough money to pay their long-term care expenses. It looks like advisors hadn’t done much to help Gen Xer clients with that concern. Only 9% had talked about planning for cognitive decline, like dementia or Alzheimer’s. Only 29% had talked to their clients about insurance.

Addressing parents’ LTC needs. A little over half of the Gen Xers with advisors said they were somewhat or very confident about being able to assist with their parents’ LTC bills. The survey didn’t ask Gen Xers how many had talked about that with their advisors.

Paying children’s college bills. Many experts in the field suggest that Gen Xers should prioritize their retirement planning and leave the children’s college bills second. However, Gen X parents say the money to put their children through college must come from somewhere. Only 51% of the Gen Xers with advisors said they were somewhat or very confident they’ll have enough money to defray their children’s higher education expenses.

Tax-Free Withdrawals. Unlike traditional IRA withdrawals, qualified Roth IRA withdrawals are federal-income-tax-free and most often state-income-tax-free. A qualified withdrawal is one taken after you, as the Roth account owner, have met both of the following requirements: (i) you’ve had at least one Roth IRA open for more than five years; and (ii) you’ve reached age 59½ or become disabled or dead. To satisfy the five-year requirement, the clock starts on the first day of the tax year for which you make your initial contribution to your first Roth account. That initial contribution can be a regular annual contribution or a conversion contribution.

RMD Exemption. Unlike a traditional IRA, you don’t have to start taking annual required minimum distributions (RMDs) from Roth accounts after reaching age 70½. Instead, you can leave your Roth account(s) untouched for as long as you live if you want. This makes your Roth IRA a great asset to leave to your family, if you don’t need the Roth money to help finance your retirement.

Annual Roth contributions make the most sense for those who think they’ll pay the same or higher tax rates during retirement. Higher future taxes can be avoided on Roth account earnings, because qualified Roth withdrawals are federal-income-tax-free (and typically not taxed at the state level). However, the downside is you don’t get a deduction for making Roth contributions.

Therefore, if you anticipate paying lower taxes in retirement, you might want to make deductible traditional IRA contributions (if your income allows). That’s because the current deductions may be worth more to you, than tax-free withdrawals down the road.

What is the other best-case scenario for annual Roth contributions? It is when you’ve maxed out on deductible retirement plan contributions. Annual contributions are limited, and earned income is required. The maximum you can contribute to a Roth for any tax year is the lesser of: (1) your earned income for the year; or (2) the annual contribution limit for the year. Earned income is wage and salary income (including bonuses), self-employment income, and alimony received that is included in your gross income (believe it or not). If you’re married, you can add your spouse’s earned income to the total. Remember, after reaching age 70½, you can still make annual Roth IRA contributions, provided there are no problems with the earned income limitation or the income-based phase-out rule. However, you can’t make any more contributions to traditional IRAs after you reach age 70½.

Roth conversions. The fastest way to get a significant sum into a Roth IRA is by converting a traditional IRA to a Roth. The conversion is treated as a taxable distribution from your traditional IRA, since you’re deemed to receive a payout from the traditional account. The money then is deposited into the new Roth. A conversion before year-end, will trigger a bigger income tax bill. However, today’s federal income tax rates might be the lowest you’ll ever see. Therefore, if you convert now, you’ll pay today’s low tax rates on the extra income from the conversion and avoid the potential for higher future rates on all the post-conversion income that’ll be earned in your Roth account. Roth withdrawals taken after age 59½ are federal income tax-free, provided you’ve had at least one Roth account open for over five years.

04/17/2018

“Ingvar Kamprad was one of the richest men on the planet. But his heirs will only get a fraction of his billions.”

IKEA founder Ingvar Kamprad died late last month at age 91. He was one of the richest people on earth, thanks to the great success of his retail furniture empire. The notoriously frugal entrepreneur was ranked number eight on the Bloomberg Billionaires Index. His fortune was estimated to be about $73.8 billion.

Most of the IKEA furniture stores are owned by the Stichting Ingka Foundation. The Dutch entity’s objective is to donate to charity and “supporting innovation” in design. The company was started by Kamprad in the ‘80s and is outside his family’s control.

The company is controlled by Liechtenstein-based Interogo Foundation, and its subsidiary, Inter IKEA, is the global IKEA franchisor. In addition to philanthropy, the Foundation also allows for profits to be reinvested into the company. The foundation in effect owns itself. As such, Kamprad’s family can’t own any shares.

The reason for doing this was to ensure IKEA’s long-term survival. It’s now impossible for any individual person to take control of the company after Kamprad’s death — even a direct heir. Therefore, Kamprad’s family won’t have control over the IKEA company. But they will get modest sums from Ikano Group, a company that is worth billions of dollars in its own right.

That company is owned by the family and runs several businesses in the finance, real estate, manufacturing, and retail industries.

Per Heggenes, CEO of the IKEA Foundation said in 2012 that Kamprad was “not interested in money.”

Medicaid covers a range of long-term services for eligible applicants. States generally require that individual applicants have no more than $2,000 in assets ($3,000 to $6,000 for couples). State income requirements vary by jurisdiction.

Medicaid planning is a strategy to work with attorneys, accountants, and advisors to shift wealth to trusts or annuities to qualify.

Those who should be thinking about this are seniors who aren't insurable for some reason. If they have some assets but needed care in a nursing home, their savings would quickly be drained.

To qualify for Medicaid and pass the means test, older individuals must transfer their wealth at least five years before they apply. There’s what is called a "five-year lookback." An applicant may be subject to penalties and be ineligible for Medicaid for a period of time for any gifts made within the 5 year period. They’d have to pay out of pocket. Remember, a transfer of assets can be risky in Medicaid planning. That’s because an outright gift of assets to a relative, could mean that the recipient doesn't get a step-up in basis. They could wind up with hefty capital gains taxes, if they try to sell the asset immediately. In addition, leaving money to a child can be reached in a divorce or by creditors. One option may be an irrevocable trust. This is because those assets aren’t under the control of the senior and are protected from creditors.

There are many moving parts in elder care planning, such as taxes, trusts, and asset management. Leverage the expertise of a team of professionals to devise a strategy.